Young Lawyer Focus: Changes in the Student Loan System

It is no secret that student loans are burdening much of America. “[T]he cost of a university education has risen three times faster than other school-related expenses,” which is faster than the rate at which most family incomes have risen. “Average Student Loan Debt: 2022 Statistics in the United States,” Nitro (2022). Most students finance the cost by taking out student loans either with the federal government or with a private lender. Id. As a result, 25 percent of Americans have student loan debt, with an average debt amount of $37,172 and an average monthly payment of $393. Id. Of course, these numbers drastically increase for graduate school and advanced degrees like JDs and MDs. As of the end of 2021, student loans accounted for approximately $1,750,900,000,000 of Americans’ debt, surpassing credit card debt and accounting for more debt than any other category except for home mortgages. Consumer Credit—G.19, Bd. of Governors of the Fed. Rsrv. Sys. (Feb. 7, 2022).

With such a large debt burden on Americans, any changes are bound to affect huge portions of the population. Although federal student loan payments are currently on pause, those payments will be restarted on May 1, 2022, so student loan borrowers should educate themselves about the major changes that are coming or have already arrived.

PSLF Program Waiver and Expansion

A major campaign promise of the Biden administration was to cancel $10,000 of student loan debt for all federal government borrowers. To date, that has not come to fruition and does not appear likely to occur during this administration. However, the Biden administration has taken other actions on student loans that may help some borrowers. Most notably, the Public Service Loan Forgiveness (PSLF) program has become much more attainable for borrowers meeting the required criteria. One of the major criticisms of the program was that loan servicers were steering students to the wrong payment plans, making their 10 years of payments unqualified for forgiveness, even if the payments they made were higher under the wrong program. A newly instituted PSLF waiver addresses this criticism.

On October 6, 2021, the U.S. Department of Education announced that for a limited period of time, borrowers could receive credit for past periods of repayment that would otherwise not qualify for PSLF. The qualifying employment requirement has not changed, but borrowers can receive credit for past payments regardless of whether or not the payment was made on time, was made for the full amount, or was on a qualifying plan. If you have worked for an entity that may meet the qualifying employment criteria (i.e., federal, state, or local government entities or nonprofit companies and agencies), you should review the changes to the program as you may be much closer to forgiveness than you think.

However, this waiver is only available for a limited time, and you must apply for the waiver and forgiveness no later than October 31, 2022. You must apply with the U.S. Department of Education for this waiver, and the Certification & Application form can be found here.

Student Loan Servicer Changes

Another major, and likely more important, development is the change in student loan servicers. While the federal government provides the funds, many of the loans are serviced by private service companies, such as MOHELA, Navient, or Sallie Mae, with which the federal government contracts to manage the loans. These companies provide information on a student’s loan, such as the monthly payment amount based on a borrower’s income or whether a borrower qualifies for PSLF or deferments. However, the ultimate decision on loan forgiveness is left to the U.S. Department of Education.

As many borrowers no doubt have learned, their lender is likely changing by the end of 2022, if it has not changed already. In 2021, Navient, the Pennsylvania Higher Education Assistance Agency (PHEAA) (i.e., FedLoan Servicing), and Granite State Management and Resources all announced their exit from the student loan servicing business. FedLoan Servicing is currently the only company that manages the PSLF applications and has continued to service federal loans in 2022 at the request of the current White House administration in order to create a smoother transition process. However, FedLoan Servicing will end all operations in September 2022, mere months from now. For a discussion about the ramifications of the mass exodus of servicers from the student loan servicing market, see Hanneh Bareham, “Navient Is the Third Company to Exit Federal Student Loan Servicing This Year. Here’s How Your Student Loans Are Affected,” Bankrate (Oct. 21, 2021).

If your loan is currently being serviced by one of these companies, you should make sure to do the following before your lender changes:

1. Check your emails for information from your loan servicer.  Many folks get so many emails now that they gloss over everything in their in-box that they are not expecting. However, many servicers will contact borrowers by email to notify them of a change in lender. These emails provide important information for borrowers on next steps. If you have not seen any communication from your lender to date, search your emails for your lender’s name to see if you have received any communications.
2. Verify your loan details and download all available electronic statements. This will enable you to have a handle on where your payments and interest stand, how many qualifying payments you have made if you are pursuing PSLF program forgiveness, and your prior lender’s information. When student loans are transferred to different servicers, the transition process is notorious for creating headaches for borrowers by relaying incorrect or missing information and not accurately accounting for payments.
3. Check if you qualify for loan forgiveness. Many borrowers may qualify for loan forgiveness and not even know it. Beyond the PSLF program, there are forgiveness programs for income-driven repayments, teacher loan forgiveness for low-income public elementary or secondary schools, and forgiveness for nurses. Nerd Wallet provides a good list of potential loan forgiveness programs that can be reviewed to determine if a borrower meets forgiveness criteria.
4. Check your autopay settings. Many borrowers take advantage of a .25 percent or greater reduction in interest rates offered by many services for borrowers who enroll themselves in autopay. With a change in servicer, these autopay payments may not automatically roll over to your new lender. Once you know to which lender your loan will be transferred, ensure that this information is relayed to your bank so that payments are sent to the correct lender and you avoid a missed payment.

Conclusion

As you can tell, there are many changes that have occurred in the past year and many more changes to come. Stay tuned for more information in the coming months.